Wednesday, October 31, 2007

A Farewell to Alms

Gregory Clark's new book, "A Farewell to Alms: A Brief Economic History of the World", tackles the problem of why some nations are rich and others are poor.

In 1800, the gap between the richest nations and the poorest was 4-1, similar to the income gap between you and that person who makes, well, four times more than you.

The gap is now 50-1, which is similar to the income gap between you and a Hedge Fund Manager. (The rules of polite discourse require that I go at least 24 hours without mentioning the former Hedge Fund employee John Edwards known as The Carolina Ambulance Chaser.)

Despite the world's increasing prosperity, despite the millions moving out of poverty in Asia every year, the poor are becoming less poor at a slower rate than the wealthy become more wealthy. They're moving up, but why are we moving so much faster? And I have no qualms about lumping you into the "we" category. If you're someplace where you can read this on a computer, you're a wealthy "we".

It's nature versus nurture. One of the big debates of our times involves the causes of economic growth. Why is North America richer than South America? Why is Africa poor and Europe wealthy? Is it possible to eliminate global poverty? The World Bank estimates that 2.5 billion people still live on $2 a day or less. On one side are economists who argue that societies can nurture economic growth by adopting sound policies. Not so, say other scholars such as Lawrence Harrison of Tufts University. Culture (aka "nature") predisposes some societies to rapid growth and others to poverty or meager growth.Comes now Gregory Clark, an economist who interestingly takes the side of culture. In an important new book, "A Farewell to Alms: A Brief Economic History of the World," Clark suggests that much of the world's remaining poverty is semi-permanent. Modern technology and management are widely available, but many societies can't take advantage because their values and social organization are antagonistic. Prescribing economically sensible policies (open markets, secure property rights, sound money) can't overcome this bedrock resistance.Look at those three items in parentheses....

Open Markets. AKA Free Markets. AKA Places where people aren't starving. (For those of you overseas or over 50, AKA is an American Law Enforcement acronym for "Also Known As")

If there's one lesson that anyone who stayed awake through the previous century should've learned, it's that planned economies don't work. Closed economies don't work. No nation has ever protected itself to prosperity.

But the small number of people who could lose a lot in a free market always tend to outshout (and out-donate) the massive number of people who would collectively gain a far larger amount. Google anything about sugar, cotton, ethanol, or corn prices. You're getting screwed, unless you're one of the lucky producers of sugar, cotton, ethanol, or corn.

Hit the Free Market Rants tab below for more info.

Secure Property Rights. If I've bought something, it should be mine until I decide to get rid of it. That's why people line up to invest in the U.S., where you can buy a percentage of something like a business, and it will remain yours. But the line to invest in Putin's Russia (where he recently nationalized parts of the steel industry belonging to a competitor and critic), well, that line is very, very short. In fact, if you want to invest in Russia, email me. I've got some great North Korean Growth Stocks I'd be willing to make you a deal on.

But hold on a minute....

A Russian-like problem is rearing it's head in my beloved Fort Worth, Texas. Someone named Billy Mitchell recently put up a billboard with the text "Eminent Domain: Stealing What Others Work For".(Eminent Domain is a fancy term that essentially means "to steal what others have worked for".)

Billy Mitchell was a bit aggravated that the government would allow Oil and Gas interests to take his land for something that provides a higher tax return than Billy Mitchell.

Example number two: a bunch of houses disappeared a few miles to the east in Arlington, TX. The City of Arlington took the homes from their owners. No one had a choice. The homes and apartments were bulldozed, and a new stadium is being built for the Dallas Cowboys. Arlington technically took posession of the land, but the land is now underneath concrete that belongs to Cowboys owner Jerry Jones. Click here for a great analysis of the stadium problem, as blogged by a Houston lawyer. Click here for a full blown beautifully illustrated rant, a diatribe that should make our blood boil. It's a harangue that would cause us all to drive over to Arlington with torches and pitchforks if we weren't a nation of sheep.

Sound Money- This means that the money of the nation is good, accepted everywhere, and can be swapped for as much stuff tomorrow as it can today.

Nations in chronic poverty have a tendency to solve their problems by printing money. They shouldn't do that. See the collected works of Milton Friedman. When you have a surplus of something, it's value declines. When you have a shortage of something, it's value generally increases. Gerald Ford's "Whip Inflation Now" campaign could have been eliminated by a simpler campaign called "Stop Printing So Much Damn Money".

There's another problem related to "Sound Money" that has less to do with the amount of paper in circulation, and more to do with the amount of debt owed by the nation printing the paper. That's a topic for another day.

At least 4 or 5 days a week, I go to Barnes & Noble or Borders and read all these Economics Geek books so you don't have to. I'm grateful that they supply them on the Open Market. I read them in the coffee bar without paying for them, which is probably a violation of their Property Rights. But it helps me maintain a supply of Sound Money.

1 comment:

Howdy----Saw you'd put a link on your blog to my whining about the Dallas Cowboy Stadium Scandal Abomination on your blog. Loved your description of it as a full blown beautifully illustrated rant. Like that so much I added it to the webpage. I started doing the blog thing the first of the new year. It's addictive. I've done more complaining about the Jerry Jones crimes on the blog than on the website. Got a great email from one of the victims last week. Put that on the blog. And the website too. www.durangotexas.blogspot.com